Question

Preparing a cash budget Oscar Fox, the accounting manager of Onaka Antique Company, is preparing his company's cash budget for the next quarter. Onaka desires to maintain a cash cushion of $2,000 at the end of each month. As cash flows fluctuate, the company either borrows or repays funds at the end of a month. It pays interest on borrowed funds at the rate of 1 percent per month July August September $ 10,000 90.000 $100,000 $? 96,000 104,000 Cash Budget Section 1: Cash Receipts Beginning cash balance Add cash receipts Total cash available (a) Section 2: Cash Payments For inventory purchases For S&A expenses For interest expense Total budgeted disbursements (b) Section 3: Financing Activities Surplus (shortage) Borrowing (repayments) (c) Ending Cash Balance (a - b + c) 76,500 18,000 85,500 19.500 81,000 18,500 0 99,500 500 1,500 $ 2,000 $ 2,000 Required a. Complete the cash budget by filling in the missing amounts. Round all computations to the nearest whole dollar. b. Determine the amount of net cash flows from operating activities Onaka will report on its quarterly pro forma statement of cash flows. c. Determine the amount of net cash flows from financing activities Onaka will report on its quarterly pro forma statement of cash flows.

Answer 1

Answer (a):

July August September $10,000 $90,000 $100,000 $2,000 $96,000 $98,000 $2,000 $104,000 $106,000 Cash Budget Section 1: Cash receipts Beginning cash balance Add cash receipts Total cash available (a) Section 2: Cash payments For inventory purchase For S&A expenses For interest expenses Total budgeted disbursements(b) Section 3: Financing activities Surplus (shortage) Borrowing (repayment) (c) Ending balance (a-b+c) $81,000 $18,500 $85,500 $19,500 $76,500 $18,000 $15 $94,515 $0 $0 $99,500 $105,000 $500 $1,500 $2,000 $3,485 ($1,485) $2,000 $1,000 $1,000 $2,000

Answer (b):

Net Cash flows from operating activities for the quarter = - $9015 or ($9015)

Working:

Let us first calculate the amounts for the quarterly totals:

July August September Quarter $10,000 $90,000 $100,000 $2,000 $96,000 $98,000 $2,000 $10,000 $104,000 $290,000 $100,000 $300,000 Cash Budget Section 1: Cash receipts Beginning cash balance Add cash receipts Total cash available (a) Section 2: Cash payments For inventory purchase For S&A expenses For interest expenses Total budgeted disbursements(b) Section 3: Financing activities Surplus (shortage) Borrowing (repayment) ($) Ending balance (a-b+c) $81,000 $18,500 $0 $99,500 $76,500 $18,000 $15 $94,515 $85,500 $243,000 $19,500 $56,000 $15 $105,000 $299,015 ŞO $500 $1,500 $2,000 $3,485 ($1,485) $2,000 $1,000 $1,000 $2,000 $985 $1,015 $2,000

Net Cash flows from operating activities for the quarter = Cash receipts (from customers) - cash paid for inventory purchase - cash paid for S&A expenses - Interest expenses

= 290000 - 243000 - 56000 - 15

= - $9,015

Answer (c):

Net cash flows from financing activities = $1,015

Working:

Net cash flows from financing activities =  net borrowings = $1015